1. Performance Based Pay Strategic implications of pay for performance
Assumptions of incentive plans
Individual and group incentive systems
Managing merit pay systems

2. Strategic Implications of Merit Pay
Global need for positive push
Rewarding the right behaviors

3. Assumptions of Incentives
Why pay individuals differently
Pay ranges
Broad banding
Ability, expectancy, instrumentality
Performance variation
Performance measurement
The trust factor

4. Individual Plans
Merit pay
Awards and bonuses
Piece rates
Commissions

5. Group Plans Profit sharing Gain sharing
Advantage: Employee involvement
Disadvantage: The risk factor, lack of control, sense of inequity
Gain sharing
Disadvantage: Trust essential, union opposition, not useful in piece work

6. Gain Sharing & Profit Sharing
Based on local productivity
Benefit comes close in time to actual performance
Profit Sharing
Based on total firm financial performance
Benefit is deferred to annual administration or even put into pension system

7. Employee Stock Ownership Plans
Every employee a part owner
Works better when done for reasons of management commitment than for financial reasons
It does not automatically improve employee performance, attitudes or sense of control

8. Incentive System Failure
Hardly noticeable rewards
Inadequate performance appraisal
Ambiguous links between performance and reward
Higher union wages
Adaptation problem

9. Incentive System Success
Clearly noticeable rewards
Accurate appraisal
Managers adept in appraising and feedback
Visible link between performance and reward
Wide range of increases

10. Administrative Issues
Concerns: Fairness, Risk, Efficiency
Communication
Pay Secrecy
Pay satisfaction

11. Merit Pay Systems
Adapted From Hills, Bergmann, & Scarpello, Compensation Decision Making, 2 Ed.

12. Backwards & Forwards
Summing up: Today are topics began with the strategic implications of pay for performance, we then examined assumptions underlying incentive systems and several individual and group merit pay plans. We concluded with a look at the management issues in applying the incentive systems. What makes some plans fail, why do they work
Looking Ahead: Next time we dig into the topic of benefits — health, holidays and pension at our next session.